Finance minister Enoch Godongwana has announced an emergency fuel price intervention. This idea should find much broader application in government thinking about how to revive SA’s lifeless economy.
The latest forecast for the fuel price shocker South Africa will face when they wake up on Wednesday, 6 April, was that they’ll pay nearly R2 a litre extra for petrol, about R3 a litre more for diesel, and R2.50 more for illuminating paraffin.
This increase would take South Africa deep into record territory, paying about R23.50 a litre for petrol for the first time ever. That is R10 a litre more than the country paid just two short pandemic years ago, after a decade of relative fuel price stability around the R12 mark.
The fuel price affects not only every person who needs to go places by car or public transport, but literally every other price in the market. It is a cost component of all goods and every service imaginable, from basic food to professional services.
Combined with rapidly rising food prices and recent interest rate hikes, the record fuel prices signals a severe cost of living crisis for a majority of South Africans.
Stacked on top of the country’s anaemic underlying growth rate, which even after the catastrophe of lockdown isn’t looking lively on the rebound, the outlook is serious economic hardship for the foreseeable future, and probably for the rest of the decade.
The spike in the oil price, caused by the very unfortunate spat between uppity Ukraine and a totally innocent neighbour and our best friend forever, prompted finance minister Enoch Godongwana to announce an ‘emergency fuel price intervention’.
Wishful thinking
Before the announcement late yesterday afternoon, News24 senior financial reporter Khulekani Magubane said that the Parliamentary Portfolio Committee on Mineral Resources and Energy had proposed a ‘tax holiday’. He speculated – hopelessly optimistically – that if the general fuel levy were suspended, South Africans could save R3.93 per litre at the pump. Even that would have only taken the price back to January 2022 levels, however.
Tom Head at The South African was indulging in even wilder wishful thinking when he suggested that the Road Accident Fund levy could also be included in a tax holiday, which would make the cut R6.11 per litre. Even that would only have taken the price back to mid-2021 levels, though.
Treasury itself has had its sights set elsewhere. It doesn’t really want to give up fuel taxes at all. Luxury cars for cabinet members don’t pay for themselves. Instead, it has been talking of revising the retailer profit margins which are built into the fuel price.
That would save a mere R0.86 at the pump, sacrificing only the living style of petrol station owners and their customers to maintain the high lives of predatory government officials.
I was hoping for an announcement that Cyril Ramaphosa’s obsequious bootlicking had paid dividends for South Africa in the form of discounted access to the oil and gas that Russia can’t sell because of sanctions. But no, we licked Putin’s boots for free.
Not a holiday
An ANC politician can always be relied upon to disappoint, however, and Godongwana is no exception. In the end, he offered only token short-term relief to help us ‘get used to the new reality’ of higher fuel prices.
From 6 April, the date of the next scheduled fuel price adjustment, the general fuel levy will be reduced by a modest R1.50, and only until 31 May. The tax break (‘holiday’ is too generous a term) will be funded not by downgrading the cabinet’s luxury car or VIP protection budget, but by selling part of the strategic fuel reserve, which seems pretty foolhardy when the country is facing great supply chain uncertainty.
After the expiry of the short-term tax break, on 1 June, South Africans will face a double-whammy at the pump as the general fuel levy returns to its former level.
Godongwana did promise a ‘broad package of relief measures’ to take effect from 1 June, but its primary effect will be to shift fuel price relief from the government onto the private sector.
Besides reviewing retail margins and other components of the fuel price that do not stymie the Treasury’s insatiable greed, the most significant of these measures will be a partial deregulation of the fuel price. Retailers will, as of 1 June, be permitted to sell fuel for less than the regulated price. This will, the minister hopes, spur competition.
In principle, this idea has great merit, although the vigour of competition will no doubt be dampened by rules designed to prevent retailers from taking competitive cost-cutting measures that threaten, for example, the continued employment of armies of petrol pump attendants.
Permanent tax holiday
Having recognised that the fuel tax is a heavy burden on citizens and a damper on economic production, perhaps the government ought to draw some more general conclusions. Fuel taxes always reduce economic productivity and always raise the cost of living. They always reduce living standards.
The same is true for all other taxes. This government has made an art out of taxing every movement of money and capital it can track. Earn money? Tax. Invest money? Tax. Pay money? Tax. Die with money? Tax.
Every single one of the myriad taxes reduces economic productivity, raises the cost of living, and reduces living standards.
It is not unreasonable to levy simple and fair taxes to fund a reasonable set of public services and a minimal social safety net. However, all taxes are dependent on a private-sector economy that creates wealth in the first place.
At present, the tax burden in South Africa is extraordinarily high, and its economic growth – ignoring the crash and rebound associated with lockdown – has steadily declined to zero. (In 2019, the country’s GDP growth was a meagre 0.15%, the third in four years for which it was below 1%.)
This is no coincidence. If you tax an economy to death, it dies. Apparently, this fairly simple realisation has yet to penetrate the skulls of the pooh-bahs in the National Treasury.
Godongwana pretends that he is doing us, the lowly citizens, an extraordinary favour by granting a temporary and limited tax break on fuel. However, agreeing not to take quite as much of your money isn’t a favour. It’s a slightly lower degree of extortion.
Recognising that a tax break on fuel will relieve the extraordinary pressure on both private citizens and the wider economy should lead Godongwana to recognise that this is a universal truth. If he truly wants a more dynamic economy, a more productive economy, an economy that grows sufficiently rapidly to invest in training and absorbing new labour, and an economy that can grow the tax base organically, then he should take his hands off the economy’s throat.
Taxing a smaller share of a rapidly growing pie is a benefit not only to citizens, but ultimately also to the government officials who want their overseas healthcare trips, their home security upgrades, their free flights, and their luxury cars.
Lower corporate taxes will make South African companies more competitive on the global stage. Lower income taxes will enable South Africans to live better and to save or invest their earnings. Not taxing capital whenever it moves will encourage dynamic capital allocation that responds rapidly to the needs and demands of a vibrant, modern economy.
Special economic zones
The same realisation should apply to the notion of Special Economic Zones (SEZs, formerly known as Industrial Development Zones). There are 11 of them, all of which are designed to promote economic development, industrial productivity, job creation and growth. All of them do so by substantially reducing the taxes applicable to companies operating within the SEZ.
If that is what a special economic zone with reduced taxes achieves, why not turn the entire country into an SEZ? We should slash taxes and red tape everywhere. We should turn South Africa into a tax haven, out-competing the rest of the world for foreign investment and wealthy immigrants. This would fuel the extraordinary growth the country needs to dig itself out of its economic grave.
The notion that lower taxes reduce the burden on citizens, rich and poor, and encourage economic activity, growth, job creation and international competitiveness, is not rocket science. It doesn’t apply only to fuel. It is a generalisable concept.
Tax holidays should not be reserved only for crises. They work at all times and everywhere. A permanent tax holiday (or at least very substantial tax relief) would be the single best intervention this government could make to revive South Africa’s lifeless economy.
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The views of the writer are not necessarily the views of the Daily Friend or the IRR
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